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Social Norms, The Invisible Hand, and the Law

Social norms can be oppressive or empowering; and so can laws. Norms are sometimes described as emergent rules or behavioural regularities that arise as solutions to collective action problems faced by individuals when they interact with each other. Examples include rules of combat, courtship rituals, and informal systems of property rights that determine what members of a group can do with the food they gather and the objects they create, or whom they can marry.

In this paper we argue that social norms are emergent orders; that when they are welfare-enhancing they constitute invisible hand processes; and that whether we should rely more heavily on laws or norms to improve social welfare depends on the political institutions in place and the nature of the case under consideration. In other words, we argue that there is no general answer to the question of whether norms or laws should prevail, in part because both emerge from imperfect, path-dependent processes that have their own distinctive advantages and disadvantages. We do, however, suggest some general conditions under which it might be better to rely on laws or on norms to enhance social welfare.